The Importance Of Price Confirmation Before Entering A Trade

by Olivier on April 19, 2010

Tonight’s post is meant to be a reminder to pay attention to risk control and to avoid losing money. Only if both aspects are covered should one focus on making money. As a general rule being patient and waiting until price confirms a pattern or a thrusting move is validated by follow through, pays off. In the long run being patient will help increase your discipline.

Remember: Trading is a marathon, not a sprint.

Patiently waiting before one enters a trade means there’s no guessing involved. Simply acting and positioning according to what price is telling traders to do. Of course being patient and being too late often are very close. In any case here are two chart examples confirming the general rule that being patient does pay off:

Gold in US Dollar Technical Analysis Price Chart

Up-to-date Gold Price Chart on my public list.

The Gold price hasn’t taken out the pivot high that will probably signal a resumption of the uptrend. Although I think the bull market in Gold is alive and kicking, in this case waiting avoided lots of headache and guessing as to where gold prices are ultimately headed.

MMR McMoRan Exploration NYSE Oil Natural Gas Technical Analysis Price Chart Bullish Wedge Pattern

Up-to-date MMR – McMoRan Exploration chart on my public list.

MMR – McMoRan Exploration is a great trading lesson on why you shouldn’t trade your opinion and instead wait for price confirmation. I recently stated I thought the bullish wedge wasn’t picture perfect. Then again I never thought the stock would get sold off hard like that. Patiently waiting for the stock to take out the most recent swing high slightly above 17.00 was great insurance against today’s huge price drop. Now we can patiently wait and see if the bullish wedge is indeed invalidated or if a move back into the pattern will trap traders betting on even lower prices.

The Sector Overview Chart List keeps growing. The most recent additions include:

Experienced traders control risk, inexperienced traders chase gains. – Alan Farley

My public list with all my charts can be viewed here:

Have a great evening!

{ 1 trackback }

Comments on this entry are closed.

Previous post:

Next post: